Investor Guidance
HRA deduction admissible only if rent is paid
by AN Shanbhag
Q: I would like to know that if someone who is staying with his parents is getting a house rent allowance from his employer, can he pay rent to the parents and get the HRA deduction? What documents are needed -whether a simple rent receipt will be allowed or an agreement is required?

Aviation Notes
Most bilateral rights remain underutilised
It has now been reconfirmed that politicians have been wholly responsible for the feeble health of airlines, both state-owned and private. Intensely unhappy at the goings on in the airline industry, minister of state for civil aviation Vayalar Ravi has admitted that gross underutilisation of bilateral rights for lucrative routes on international sectors has been the main cause for the near collapse in this crucial sector.

Crunch time for cos as debts come due
Mumbai, December 17
Billionaire Anil Ambani's Reliance Communications, India's no. 2 mobile carrier, has a US $925 million convertible bond maturing in March at a conversion price of Rs 654 — more than nine times its current stock price.

Russia to boost LNG supplies to India
New Delhi, December 17
Russian President Dmitry Medvedev said Friday country would significantly boost the supplies of liquefied natural gas to energy hungry India beginning from 2016. Addressing the CEOs forum of the top companies of the two countries, Prime Minister Manmohan Singh said Indian firms were interested in oil and gas projects in Russia. India's gas consumption is projected to jump 70% by 2020.

A pedestrian walks past real estate advertisements outside a vacant outlet in Hong Kong on Saturday. Hong Kong has overtaken the United States and Britain to rank top in a World Economic Forum survey on countries' financial health published on December 13 — AFP

Slump in gold prices set to boost demand
Mumbai, December 17
Last week's fall in gold prices is expected to boost demand ahead of the wedding season early next year, according to jewellers. The yellow metal which touched an all-time high of Rs 29,500 per ten grams fell to around Rs 27,000 per ten gram before rising slightly over the weekend.

Silver Lake, Microsoft working on new Yahoo stake offer
New York, December 17
A consortium of private equity group Silver Lake, software giant Microsoft Corp and venture capital firm Andreessen Horowitz are reworking their bid for a minority stake in Internet company Yahoo Inc, a source familiar with the matter said on Friday.

Japanese video game major Sony Compuer Entertainment (SCE) president Andrew House (R) and SCE chairman and Sony executive vice president Kazuo Hirai celebrate the new portable video game console ‘PlayStation Vita’ (PS Vita) at its launch in a video game shop in Tokyo on Saturday. Sony will put the new gaming system on
the market in the United States and Europe in February 2012. — AFP

London, December 17
A sudden stop to growth in Brazil. Rising political risk in Russia. A slide in India's rupee to a record low. A marked slowdown in growth in China.

Have big emerging markets had their day? After all, even Goldman Sachs, which coined the BRIC acronym 10 years ago, reckons the quartet's contribution to global growth is unlikely to rise much further. Not so fast.

While all emerging markets face stiff headwinds going into 2012 as the eurozone's debt crisis drags on, economists firmly expect them to remain the main driver of growth and to lead the world economy back to better times.

"By the second half, stronger growth across China and other emerging economies should pull up worldwide activity," said Gerard Lyons, chief global economist at Standard Chartered Bank. "It’ll be a recovery made in the East and felt in the West. If ever one needed evidence of a shift in the balance of power, this is it," he wrote in the bank's preview of 2012.

As if to underscore the point, Fitch on Thursday became the first ratings agency to raise its measures of Indonesia's sovereign creditworthiness to investment grade, just as financial markets are waiting for rival Standard and Poor's to downgrade most of the 17 members of the eurozone.

In an age of criss-crossing supply chains and instant capital movements, the notion that any country can decouple from what is happening in the rest of the world is a delusion. When advanced economies shrank 3.7% in 2009 at the height of the global financial crisis, growth in emerging and developing economies slowed to 2.8% from 6% in 2008, according to the International Monetary Fund.

Similarly, the eurozone's woes are already having an effect far and wide as the bloc's demand for imports sags, European banks curtail credit in noncore markets and investors who had piled into emerging markets in search of yield turn tail. David Hauner, head of economics and fixed-income strategy for emerging Europe at Bank of America Merrill Lynch, said the key for investors in 2012 was to identify countries and regions that did not depend on potentially fickle foreign inflows.

"We anticipate these capital flows will remain very scarce over the course of the first half of next year at least," Hauner said. Thus, the bank expects growth in Asia, a big exporter of capital and increasingly reliant on domestic demand, to slow just half a percentage point in 2012 to 7%. — Reuters

Full eurozone deal beyond reach: Fitch

Credit rating agency Fitch said it thought a comprehensive solution to the eurozone's debt crisis was beyond reach, putting six eurozone economies including Italy on watch for potential near-term downgrades. It reaffirmed France's top-notch triple-A rating but even here said the outlook was now negative, meaning it could be downgraded within two years.

Q: I would like to know that if someone who is staying with his parents is getting a house rent allowance from his employer, can he pay rent to the parents and get the HRA deduction? What documents are needed -whether a simple rent receipt will be allowed or an agreement is required?

— Nirja

A: There is a deduction available from the house rent allowance amount if the taxpayer pays rent for the premises he or she resides in. If you pay rent to your parents for living in a house owned by them, then indeed you would be able to claim HRA deduction. If no rent is paid, then there is no deduction available. However, this transaction should not be entered into to evade tax. In other words, it should be a genuine arm's length agreement between you and your parents. Also, note that your parents would have to include the rent you pay in their taxable income. A simple rent receipt clearly specifying the amount and the period for which the rent is being received will suffice for this purpose.

Q: My wife and I regularly contribute Rs 70,000 each in our individual Public Provident Fund (PPF) accounts. We also have an income tax file for our "Hindu Undivided Family" (HUF). Till now we were investing the balance Rs 30,000 (to make up Rs 1 lakh section 80C deduction) in tax saving bank FDs. However, now that the PPF limit itself has been raised to Rs 1 lakh, I was wondering whether we can invest in the names of our minor children and claim deduction for the same. For this I propose the following - to open PPF accounts in the name of both minor children with one child shown under mother's guardianship and the other under father's guardianship. The Rs 60,000 (Rs 30,000 x 2) will be deposited in each child's account out of the HUF file, thereby obtaining the deduction for HUF. Is this okay?

— PS Wagh

A: What you are proposing to do is to invest in the name of the children through the "Hindu Undivided Family" account. As the children are members of the HUF, this can be prima facie done. However, on account of the fact that the children are minor, it is best to avoid this route if possible. If the income tax officer makes an objection based on his reading of the law, the position would have to be defended. On the other hand, a smoother way would be for each parent to invest the Rs 30,000 extra in the name of one child each. The HUF may invest in PPF in its individual capacity. This way there is no room for ambiguity.

It has now been reconfirmed that politicians have been wholly responsible for the feeble health of airlines, both state-owned and private. Intensely unhappy at the goings on in the airline industry, minister of state for civil aviation Vayalar Ravi has admitted that gross underutilisation of bilateral rights for lucrative routes on international sectors has been the main cause for the near collapse in this crucial sector.

Ravi told the Lok Sabha last Wednesday that in fiscal 2010-11 domestic carriers utilised only one-fifth of the flying rights that India has had on a reciprocal basis with as many as 109 countries. In his words as much as 80 per cent of the total seat capacity of Indian carriers under bilateral air service agreements remained unutilised.

An indepth study reveals that before the merger forced on the national carriers by the former civil aviation minister, Praful Patel, Air India did not have an adequate fleet to fulfill bilateral agreements and politicians allowed foreign carriers to corner lucrative routes. In the postmerger stormy years, the private airlines, under one pretext or the other, were barred from operating on several international routes.

According to analysts, the airline trade can be profitable only if carriers, both state-owned and private, are accorded complete freedom to operate flights professionally and commercially. No airline, government-owned or private, should be allowed to fail in honouring their payment commitments to the oil companies and other agencies. The government's needless laxity has been the cause for private airlines' carelessness in deferring payment and also increasing their overhead expenses.

Regardless of the recent developments, the state-owned carriers can still breathe free if they are allowed to return to their original functioning — Indian Airlines on domestic routes and Air India on international sectors. Both airlines have enough competent staff to translate losses into profits if only they are free from political interference in day-to-day operations. Let commercially competent officials decide deployment of routes instead of politicians engaged in undermining the structure of the state-owned carriers.

Whatever may be the government's new aviation policy, it has been hanging fire for years. Airlines, both state-owned and private, have to be left alone to sustain themselves.

Mumbai, December 17
Billionaire Anil Ambani's Reliance Communications, India's no. 2 mobile carrier, has a US $925 million convertible bond maturing in March at a conversion price of Rs 654 — more than nine times its current stock price.

With India's economic growth buckling and the rupee at an all-time low, other firms, too, are expected to struggle to meet debt obligations in the coming months. those debts need to be repaid next year, and the timing could hardly look any worse. —
Reuters

New Delhi, December 17
Russian President Dmitry Medvedev said Friday country would significantly boost the supplies of liquefied natural gas to energy hungry India beginning from 2016. Addressing the CEOs forum of the top companies of the two countries, Prime Minister Manmohan Singh said Indian firms were interested in oil and gas projects in Russia. India's gas consumption is projected to jump 70% by 2020.

Mumbai, December 17
Last week's fall in gold prices is expected to boost demand ahead of the wedding season early next year, according to jewellers. The yellow metal which touched an all-time high of Rs 29,500 per ten grams fell to around Rs 27,000 per ten gram before rising slightly over the weekend.

"The fall in gold prices has been muted in India as the rupee has also declined sharply against the dollar," said Amit Jain a jeweller at South Mumbai's Opera House. Globally gold has fallen more than 16 per cent from its all-time high of US$ 1,900 per ounce touched in September.

According to the Bombay Bullion Association downside for gold may not be all that high in India. "We expect demand for gold to go up during the wedding season so the prices may remain steady or even increase," says a member of the association.

However bankers have warned that gold prices in India might dip sharply if the Reserve Bank of India’s efforts to arrest the fall of the rupee bears fruit. Higher remittances from non-resident Indians and inflow from foreign investors could cause the rupee to appreciate thereby accelerating the fall in gold prices in the country, they said.

Already, gold prices were showing signs of recovery today with jewellers and stockists taking delivery of the yellow metal, according to the trade. Standard gold of 99.5 per cent purity gained Rs 185 to close at Rs 27,440 per 10 grams in Saturday’s market.

The World Gold Council has estimated that India would import as much as a record 1,000 tonnes of the yellow metal this year, a 30 per cent increase over the year before.

New York, December 17
A consortium of private equity group Silver Lake, software giant Microsoft Corp and venture capital firm Andreessen Horowitz are reworking their bid for a minority stake in Internet company Yahoo Inc, a source familiar with the matter said on Friday.

Silver Lake's consortium is working on a new offer for a stake of 10 to 15 percent in Yahoo after the company asked for improved terms, the source said.

The new offer would be predicated on Yahoo finding a new, world-class chief executive that the consortium would support, the source added. Yahoo's board fired CEO Carol Bartz in September and has yet to hire a permanent replacement.

The Wall Street Journal reported earlier on Friday, citing people familiar with the matter, that private equity firms seeking to acquire just under 20 percent of Yahoo were working on new offers for a smaller stake at a higher per-share valuation.

TPG Capital, which sources previously told Reuters had also bid for a minority stake, did not respond to a request for comment. Representatives of Silver Lake and Microsoft declined to comment while an Andreessen Horowitz spokeswoman could not immediately be reached for comment.

"As previously announced, the board is evaluating various alternatives as part of its comprehensive strategic review process, all of which are designed to enhance shareholder value and promote growth and innovation at Yahoo," a Yahoo spokesman said. — Reuters

Toronto, December 17
It might seem like corporate heresy but an increasing number of technology investors and experts are asking whether Research in Motion needs to ditch its BlackBerry handset business to survive.

The idea that is gaining favor, albeit only among a minority of shareholders, would see the Canadian company fully open its secure and highly respected network to rival smartphone providers and concentrate on that business while getting out of the hardware game altogether through a sale.

Disappointing quarterly results, including a dismal outlook for Blackberry sales and word that RIM would delay the introduction of new devices, sent its shares down more than 11% to their lowest levels in almost eight years on Friday.

Just before those numbers were released, activist shareholder Jaguar Financial called on the company to sell its handset business and monetize its patent portfolio while retaining the high-margin services business. "Jaguar believes that the road map to value restoration lies in a sale of RIM whether as a whole or in separate parts," it said.

Research in Motion’s spidery, data-crunching network reaches behind corporate firewalls and taps into mobile networks globally. The network, unique among handset makers, has been a cornerstone of the BlackBerry's growth, with email and instant messages routed through RIM's own enterprise .
— Reuters